Rate cut: SBI, ICICI recover even as BoI, Yes Bank languish

Ashish Shirke, INDIATIMES NEWS NETWORKOct 31, 2007, 12.42pm IST

MUMBAI: ICICI Bank, HDFC Bank, State Bank of India, and housing finance company HDFC made up the list of losers on the Sensex as the market opened on Wednesday, a day after the Reserve Bank of India's mid-term credit policy review where it raised the banks cash reserve ratio by 50 basis points to 7.5 per cent.

The key indices had closed marginally lower on Tuesday, after the mad rush that saw the Sensex overcome the 20,000-mark and Nifty scale the 5,900 level. The decline followed losses in rate sensitive sectors banking, automobile. Realty shares, however, showed resilience.

RBI's move was on expected lines as it kept its policy rates--Bank rate, repo rate and reverse repo rate--unchanged. The central bank's CRR move is aimed at managing liquidity in the system.

The total stock of money in the system grew by 21.8 per cent as on Oct 12, 2007 way above the central bank's comfort level of 17-17.5 per cent for 2007-08 (April-March). Money supply has grown mainly on account of a sustained rise in time deposits which accounts for 73 per cent of the total stock of money. It grew 24.7 per cent to Rs 26 trillion as on Oct 12 against a growth of 18.8 per cent a year ago.

IDBI Capital Market's Ravikant Bhat said, the CRR hike was on expected lines, as the RBI was concerned on the liquidity front and also inflation. But it had stayed away from raising its policy rates to avoid any slowdown in growth. "No one would want a situation unlike 1996-97," he said.

Industrial and export performances in 1996-97 were the worst for several years. The corporate sector suffered owing to high interest rates, increased foreign competition, weak export markets and low domestic demand.

Industrial production grew by an annualised 1 per cent in January that year, down from 13 per cent in 1996. In the first ten months of the fiscal (April 1996-January 1997), output grew by 7.5 per cent, down from 11.7 per cent in the same period of 1995-96. The slowdown followed a slump in investment in plant and machinery.

On the US Federal Reserve's 2-day meeting, Bhat said, the RBI may have raised the CRR as an pre-emptive step to check the inflows if the Fed cut its rate again. The US central bank is widely expected to cut its key Fed funds rate by 25 basis points.

The other losers today in the banking sphere were Bank of India, Yes Bank and Karnataka Bank.

Bank of India had, on Monday, reported a 100 per cent jump in net profit to Rs 425.27 crore for the July-September quarter. Total income was Rs 3,503.67 crore, an increase of 39 per cent over same period a year ago. At 12:19 pm, the stock was down 1.40 per cent at Rs 367.40. It had slipped to a low of Rs 356 earlier in the day.

Yes Bank shares were down 2.82 per cent at Rs 222.50 but up from the early low of Rs 216. The private sector bank Tuesday said it had made a placement of 1.47 crore shares worth Rs 331 crore with Singapore-based financial services major, Orient Global. The Singapore firm would hold 4.99 per cent stake in Yes Bank. The proceeds would be used to fuel the bank's growth.

Earlier in the month, Yes Bank had reported an over two-fold jump in net profit to Rs 45.28 crore for the second quarter. The performance was fuelled by robust growth in interest, non-interest income and advances.

The bank's advances rose 101 per cent to Rs 7,515.9 crore during July-September period against Rs 3,730 crore in the corresponding period a year ago, interest and non-interest income zoomed 134.6 per cent and 107.1 per cent at Rs 303.45 crore and Rs 75.93 crore respectively.

Bank of India had run up nearly 18 per cent to Rs 372.60 on Tuesday on the back of Q2 earnings, and it is only correcting to that today, said Bhat. The stock has gained 21 per cent over a week and 31 per cent in a month.

Of Yes Bank, Bhat said, the stock had seen a strong run-up in recent times. The share has advanced nearly 6 per cent in a week till today and 7.83 per cent over a month.

Karnataka Bank was down 1.13 per cent at Rs 223. It had declined to a low of Rs 220.05 earlier. The Manipal-based bank today reported a net profit of Rs 60.14 crore for the second quarter ended September, a growth of 0.89 per cent. The mid-size bank's interest income was up 30 per cent at Rs 382.7 crore for the quarter. The bank's net profit in the corresponding period last year had included profit on the sale of securities of Bharat Overseas Bank.

State Bank of India and ICICI Bank shares have since recovered and the former was up 2.37 per cent at Rs 2,111.15 and latter up 2 per cent at Rs 1,265. SBI had tumbled to a low of Rs 2,030 earlier while ICICI Bank a bottom of Rs 1,147.25.

Meanwhile, the benchmark Sensex was up 0.87 per cent at 19,955, just off 45 points from 20,000. The Nifty was up 1.38 per cent at 5949.85, just 50 points short of the 6,000 mark.